Reaffirmaton

What is the name of your state? California
My question is this**************..I filed for chapter 7 Bankruptcy in 1998. My home was exempt and I did not reaffirm. Can I still reaffirm after 4 yrs? I've made all payments and have never been late. In order to refinance the finance co. and credit reporting agencies are requesting reaffirmation papers. At the time of the bankruptcy I didn't know what reaffirmation was. Help.

[Elmo-1]

I don't see why you couldn't reaffirm after 4 years, but is this a request or a requirement?

Since you're basically selling the house to yourself, the loan amount to refinance would be affected by reaffirmation. If you don't reaffirm, you're only responsible to pay market value. That would be a problem if you're re-financing with the same bank that holds the primary lein because they would be giving away money.

If you had negative equity discharged in Bk, be careful not to fall into a gar-hole. Most banks won't lend more than the market value and if you still have negative equity that you reaffirm, you may not get the full amount to re-fi the loan. Then you're stuck without approval for funds necessary to cover the full loan amount, no re-fi & no lower rates. The only thing you get out of the deal is the tacking on of a discharged debt.

I would consult your Bk attorney and ask your mortgage company about the amount of the loan they're willing to refinance if you reaffirmed on the debt with negative equity.

If the bank is willing to lend the full loan amount and you plan to stay there a while, go ahead and reaffirm if that's what it'll take to get lower rates. Just make sure you get something in return for waiving your Bk rights.

If you had positive but exempt equity in the house, go ahead and reaffirm, it won't matter.

[tnt777]

I have read your note .. but i have one question.... what does reaffirmation mean.. sorry but im new to this....

[Elmo-1]

Reaffirmation is a binding agreement between the debtor and creditor that re-establishes the same rights and liabilities that were in place before filing Bk.

It simply means that you give up your right to discharge the debt in bankruptcy - and the creditor reaquires the right to sue you or repossess if you don't pay. So, this is why you don't reaffirm unless required by your state, or unless you have lots of equity in the secured collateral. Never reaffirm a secured debt where the loan is greater than the value of the collateral, and NEVER reaffirm an unsecured debt.

[tnt777]

so would you sign a reaffirm on your home if you had 50k of equity in your home, when filing a chapter 7???

[Elmo-1]

I would. Assuming it's all exempt equity and if reaffirmation is optional in your state, it's still a personal choice. Aside from how it may be reported by the CRA's, there's really no disadvantage to reaffirming w/ $50k equity. The advantages are 1) you get to continue making payments the way you had before filing, and 2) no foreclosure games. You do need to be current before reaffirming and the court has to approve.

[tnt777]

we are currently behind in mortgage payments but the mortgage company added the late payments into our current payment (which is called a foreberance agreement and if we miss one payment it goes into foreclosure). so would it mean that if we file chptr 7 that we have to pay the late payments?? or would they just keep the current agreement going??? i hope i didnt lose ya...

[Elmo-1]

If you've already agreed to the forebearance and it's in place, you should be considered current. This is something you'll want your attorney to address. Under these circumstances, it's probably a good idea to go ahead with the reaffirmation to avoid any lapse in communications with the mortgage company.

If it's foreclosed on either in or out of Bk, forget ever seeing the equity. This is typically sacrificed to enable the lender to do a quick-sale, or it's lost in the selling price when the house goes to auction.

Should this happen in Bk after you've reaffirmed, even with $50k equity (and no house), you can still end up owing non-dischargable money to the mortgage company. It all depends on the selling price and once it's foreclosed, that's something you have no control over.

Avoid all these problems - make sure you stay current. Don't even be a day late.

[tnt777]

thanks for the info... we are currently trying to refi our home and pay some of the bills off, i should know by monday if its possible. but if we cant refi then i beleive that we will go the chptr 7 way.. thaks again for the info.... I love this site...keep up the good advice!!!!

Knowledge is Power!!!!

[Elmo-1]

That's really the right thing to do. You'll be able to get your credit straightened out much quicker by paying off your bills with the equity loan/refinance. Bk should be a last resort and, even after refinancing, the option will still be there. The other consideration is that the Bk option will be much less debtor-friendly in about a year when/if Bk Reform goes into effect.

In a post above you said:

"If you don't reaffirm, you're only responsible to pay market value. "

We have a first (80%) and second (45%) on our house. We have not reaffirmed either. We may be moving in the next year or two. Does your statement mean that we will be able to do a short sale and the second mortgage holder will have to accept whatever we take? If they wont accept a short sale, we will have to let it be foreclosed on because we certainly don't want to agree to pay back an extra $25k AFTER we've declared Ch 7.

Just wondering if you could clarify. Thanks!

Hannah

[Elmo-1]

I'm far from being an expert in clear titles, but it seems a post Ch7 Bk short sale that doesn't cover both mortgages could be a problem for a potential buyer.

My understanding on properly attached mortgage liens in Ch 7 Bk is that unless you do a lien avoidance, the lien from the 2nd mortgage may still be a liability on the property. Even though you're personally discharged from the debt, the new owner may be responsible for the liability that comes with the property.

You certainly want to check with an attorney on this. If you have no equity in your house, you may not be able to do a lein avoidance, and lien stripping is available only in Ch 13.

Ask your attorney if redemption may be a way around it. You may be able to refinance your house to pay the primary mortgage company the market value. Any balance (1st or 2nd mortgage) that exceeds the market value could be treated as an unsecured debt and discharged in Bk. At this point the house is yours, free of any secure debt and could be sold with a clear title. You'll need an attorney to sort this all out.